How pension consolidation could help you simplify your retirement savings

The idea of a “job for life” has fallen out of fashion in recent years, with many people switching employers more often to further their career or adapt to a change in their lifestyle.

According to Zippia, the latest public survey data available from 2019 showed that the average person changed jobs 12 times in their life. As such, it may be likely that you have worked with several employers over the years.

Many of them may have offered a workplace pension scheme that you contributed to, and if you have had several jobs throughout your life, it is easy to forget about some of them.

Indeed, PensionsAge reports that 88% of UK savers with workplace pensions have at least one unclaimed pension pot. These pensions have an average value of £28,000, so it may be beneficial to check that you know where all your pension savings are.

Once you have tracked down all your savings, you may think about consolidating them into one pension pot. While this can be a good way to simplify your retirement savings, there are some potential challenges to be aware of.

Read on to learn some of the important factors to consider if you are thinking about consolidating your pensions.

Pension consolidation could give you more control over your retirement savings

Each pension provider invests in different funds and has their own system for applying charges. Additionally, some might allow you to manage your savings through an online platform while others may not.

As a result, it can be confusing to keep track of all your savings and be proactive about managing your pensions if you have lots of different pots.

Fortunately, you may be able to simplify things by consolidating all your pensions into a single pot. You can then manage all your savings in one place, and you only need to remember the details of one scheme.

This could give you more control over your retirement planning, especially if you transfer your savings into a scheme that allows you to easily manage your savings through an online portal.

If you work with a financial planner, they can help you assess your retirement plan and ensure that you consolidate your pensions in a scheme that aligns with your own goals and attitude to risk.

Additionally, some pension schemes may give you more control over which funds your savings are invested in.

This could help you match your pension savings with your wider financial goals too. For instance, if you prioritise ethical investing, some providers may have specific funds that focus on sustainable investments.

Your retirement savings could grow faster if you consolidate your pensions

As well as making it more straightforward to manage your pensions, consolidating them could help you grow your retirement savings faster.

Some older pensions may offer a smaller choice of funds, for example. As such, switching to a different provider that offers a wider selection could allow you to invest your savings in funds with more potential for growth.

Certain schemes will also have higher charges, so you may be able to reduce costs by transferring your savings into a pension with lower charges. Ultimately, this means you can keep more of your wealth.

You may need to consider these differences when choosing which pension to transfer the rest of your savings into. By comparing the fees and investment performance carefully, you could potentially see more growth, meaning you have a larger pension pot to draw from when you retire.

That said, some schemes charge transfer fees for moving your savings into a different pension. If you are still decades away from retirement, the savings you make by consolidating could make it worthwhile, even if you do have to pay transfer fees.

Conversely, if you plan to retire in the next few years, consolidating may not be as cost-effective. It might be useful to seek some advice if you are unclear about the potential costs of consolidating your pensions.

You could lose additional benefits when transferring your pension

There are some situations when transferring out of a pension scheme could mean that you lose additional benefits.

For instance, you may have a guaranteed annuity rate (GAR), which would provide a much higher income than you would likely get from a standard annuity. Transferring out of the pension may mean that you lose this perk.

Alternatively, you might be part of a defined benefit (DB) pension that pays a guaranteed, inflation-linked income for life, so your income increases as the cost of living rises. Transferring out of this type of scheme is generally not advised.

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Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.

Posted in Financial Planning, News.